President Bush says today’s vote on a $700 billion financial rescue package will “help prevent the crisis on Wall Street from becoming a crisis in communities across our country.” He quickly signed the government bailout of the financial industry, after the House approved it by a vote of 263-171. But Bush warned after the vote that “our economy continues to face serious challenges.” Bush, speaking in the Rose Garden, said he knows some Americans have concerns about the cost of the measure, and about the government’s role in private enterprise. He said he believes that intervention should take place “only when necessary”–and that in this case, it’s “clearly necessary.” But even before the vote, the White House tried to dampen optimism about its immediate impact on the economy. A spokesman says it’s not aimed at giving a boost to the economy, but only at preventing a crisis in the economy.
Congressman Kevin Brady from Houston says he held his nose and voted for the measure.
“These bad loans are now infecting the whole U.S. economy—even the world’s economy—and if these Wall Street financial companies go down, I think it’s our businesses and families in Texas that get pulled down with them. So I voted to support this again today. I’m hopeful it works. But even, even as it passes, we’re still, America still (has) got some tough economic challenges ahead of us.” Ed: “What are the next priorities?” “Well, two for me. One is that Congress let the ban on offshore exploration expire. You know, everyone, I think, is going to try to block it, either through red tape or lawsuits. So one of my goals is (to) see through what we can do to cut through the red tape and get those oil leases going off our coast. And secondly, this financial bill didn’t solve the problem. We’re going to have to come back, I think, right away with some real reforms, (to) make sure this doesn’t happen again. So I’m drawing up a reform package to, to really try to bring things back into a better state. And hopefully if Congress will come back after the election, we could actually get some of those things done this year.”
Four Texas Congressional Democrats and two Republicans switched their votes to help pass the bill. The six Texans had voted against the bill on Monday but voted for it this afternoon. Democrats who changed their votes are Henry Cuellar of Laredo, Al Green of Houston, Sheila Jackson-Lee of Houston and Solomon Ortiz of Corpus Christi. The Republicans who switched are Congressmen Mike Conaway of Midland and Mac Thornberry of Clarendon.
With the financial bailout bill now signed into law, Treasury Secretary Henry Paulson promises to act quickly. He says the package includes a “wide variety of tools” that will help protect the American people, their jobs, and their economic well-being. But Paulson wouldn’t say how the government will go about buying troubled assets from financial companies, or whether the first purchases might happen before the election. He says treasury staffers are working on details.
Employers slashed payrolls by 159,000 in September. It was the most job losses in five years, marking the ninth straight month that the economy has lost jobs. The Labor Department also reports that the nation’s unemployment rate held steady at 6.1 per cent as hundreds of thousands of people streamed out of the work force for any number of reasons. So far this year, 760,000 jobs have disappeared. Manufacturers cut 51,000 jobs, construction companies axed 35,000 jobs, retailers got rid of 40,000 positions, business services shed 27,000 and financial services slashed 17,000 positions, with securities and investment firms accounting for 8,000 of those reductions. Those losses overwhelmed employment gains by the government, in education, health and elsewhere.
A private research group says U.S. services activity expanded in September, thanks to strong exports and deliveries. The reading of 50.2 from the Institute for Supply Management was down from 50.6 in August. A reading above 50 signals growth. It beat economists’ prediction of a reading of 50.0, according to the consensus estimate of Wall Street economists surveyed by Thomson/IFR.
Wachovia says it agreed to be acquired by San Francisco-based Wells Fargo in a $15.1 billion all-stock deal. But Citigroup now demands that Wachovia abide by the terms of its earlier deal to buy Wachovia’s banking operations. The clash sets up a battle over who will win Wachovia. The Citigroup deal would have been done with the help of the Federal Deposit Insurance Corporation, but the Wells deal would be done without it. The head of the FDIC said the agency is standing behind the agreement it made with Citigroup. Citigroup says its agreement with Wachovia provides that Wachovia will not enter into any transaction with any party other than Citi or negotiate with anyone else.
A Houston security company has been indicted on charges of defrauding the U.S. for work done in the Afghanistan war and rebuilding efforts. United States Protection and Investigations and four employees–subcontractors for the U.S. Agency for International Development–are charged with conspiracy, major fraud and wire fraud. The Feds announced the defendants allegedly inflated expenses for their rental vehicles, fuel and security personnel between June 2003 and July 2007. Prosecutors also seek the forfeiture of $3 million. A USAID official says the organization will hold accountable those who violate provisions of the foreign assistance program. The indictment names: USPI owner and president Barbara Spier and her husband and chief operating officer Dwayne Spier, both of Houston; USPIi’s Afghanistan operations manager, William Felix Dupre of North Carolina; and executive assistant Behzad Mehr. Mehr, who’s a resident of Afghanistan, remains at large. The others have been arrested. If convicted, the conspiracy charge carries a maximum sentence of five years in prison and a $250,000 fine. The charge of wire fraud carries a maximum sentence of 20 years in prison and a $250,000 fine. If convicted of major fraud, defendants face a maximum prison sentence of ten years and a $1 million fine.
Insurer American International Group says it plans to sell off a number of business units to pay off its massive government loan. AIG, one of the world’s biggest insurers, said it plans to retain its U.S. property and casualty and foreign general insurance businesses. The New York-based insurer also said it plans to retain an ownership interest in its foreign life insurance operations. Newly appointed chairman and CEO Edward Liddy says he’s hopeful that an $85 billion loan will be enough to provide AIG “the flexibility we need to work our way out of this situation.” He says buyers would have to assume the debt of AIG businesses they acquire. On the brink of failure last month, AIG was bailed out when the government offered it a two-year, $85 billion loan to avoid bankruptcy.
The tax relief package passed by the Senate seems to have something for everyone. The Senate fattened up the bill with tax breaks to make it more palatable to the House. Virtually all the tax breaks already exist. But many expired January 1st. Others will expire in three months. The largest group of beneficiaries is about 20 million mainly upper-middle income taxpayers. Without Congressional action, the alternative minimum tax, or AMT, would add some $2,000 in taxes this year for people mostly earning under $200,000 a year. It originally was supposed to affect only the very rich. Thousands of businesses are waiting for renewal of the research-and-development tax credit. The Information Technology Association of America reports an $18.5 billion drop in R&D activity since the credit lapsed. There are also some four dozen small provisions.
Britain’s treasury chief Alistair Darling says that the government is prepared to take further action as necessary to help financial markets and stabilize the economy. Darling says that he will do “whatever it takes” to make sure that depositors are secure and that the banking system has sufficient liquidity. His comments follow announcements that the compensation limit for consumer bank deposits has been increased and that the Bank of England is extending its money market operations to improve liquidity. Darling says that those measures demonstrate the government’s commitment to steering the economy “through undoubtedly difficult times.”
While economic numbers in the U.S. have not yet met the technical definition of a recession, they have in France. The country’s national statistics agency says the French economy is expected to contract in the third and fourth quarters. The agency says the contraction should be about one-tenth per cent in each quarter. That follows a three-tenths fall in the second quarter. For the year, France’s economy is expected to have grown 0.9 per cent. France’s finance minister had previously rejected suggestions that the country was headed for a recession. But, Christine LaGarde says “the risk of negative growth” is now real. She blames high oil prices, the strength of the euro earlier this year and the financial crisis for the recession. But she says the government is “totally mobilized” to protect French consumers and the priority should be put on restoring confidence if the financial markets.
Canada’s central bank is increasing its plans to inject extra cash into term lending markets from $8 billion Canadian ($7.4 billion U.S.) to $20 billion Canadian ($18.5 billion U.S.) to ensure Canadians have access to loans. The Bank of Canada’s announcement signals that the global financial crisis is seriously affecting the availability of credit in Canada. The bank also said its expanding short-term purchase and resale agreements under which commercial lenders get access to funds for up to 91 days. The bank now expects the minimum total outstanding will hit $20 billion Canadian ($18.5 billion U.S.) by November 6th, and it intends to hold weekly auctions at least until the end of the year. Market conditions have also prompted the bank to accept asset-backed commercial paper as collateral from primary dealers on a temporary basis.
West Virginia could end up suing investment firms at the center of the national financial crisis, and perhaps some of their former executives. Governor Joe Manchin has asked his staff to research possible legal action to recoup losses to the state’s multibillion-dollar investment portfolio. These holdings include both stocks and bonds from the likes of Merrill Lynch, Lehman Brothers and AIG. The latest figures show that the state bought these securities for $95.2 million. While a fraction of a per cent of the state’s holdings, their value had dropped by nearly $23 million by August 31st. Manchin says the firms should be held accountable if they breached their duties to shareholders. He says the state may also target firm executives who pocketed hefty exit packages.
Mortgage finance company Fannie Mae, seized by the federal government last month, is canceling a fee hike for new mortgages. Fannie Mae says that a fee introduced last year will remain at 0.25 per cent of the total loan amount. It had been scheduled to rise to 0.5 per cent on November 1st. For a $200,000 loan, that’s a savings of $500. The Washington-based company first introduced the so-called “adverse market delivery charge” in late 2007 as the housing market slumped and the company tried to shore up its finances. The decision comes nearly a month after the company, the largest buyer and backer of U.S. mortgages, was seized by the federal government along with its sibling company, Freddie Mac. The companies’ top executives were ousted as part of the takeover. In recent months, Fannie and Freddie have hiked several fees for borrowers without sterling credit, while asking for bigger down payments. Real estate agents, mortgage brokers and homebuilders have all complained that the moves were stifling the housing market.
A big shift to renewable energy and efficiency could produce 4.2 million new environmentally friendly jobs over the next three decades. The U.S. Conference of Mayors study says such “green” jobs could become the “fastest growing segment” of the U.S. economy over the next few decades. The study says about 750,000 people work today in what can be considered “green” jobs. That includes the makers of wind turbines and more energy-efficient products and scientists who research alternative fuels. The report says that by 2038, another 4.2 million green jobs are expected to be added. That would account for 10 per cent of new job growth over the next 30 years. Miami mayor Manny Diaz, the conference’s president, says the report makes “`a very compelling economic argument for investing in the green economy.”
Alarmed by the financial meltdown, stores nationwide are slapping sale signs on everything from fall sweaters to furniture. Some analysts were already expecting the weakest sales growth for the holiday season in 24 years. And what with uncertainty roiling the banking system and a teetering economy, they figure Americans will make their lists and check them three or four times. At malls, shopping districts and on the Web, the discounts are growing desperate. “Up to 60 per cent off,” say signs at Ann Taylor Loft stores; “50 per cent off” at Old Navy. Wal-Mart, the world’s largest retailer, is opening its Christmas shops a week earlier than last year to lure shoppers. But it may take more than sale signs and promotions to spur shoppers, who have been dealing for months with high gas and food prices, weaker job and housing markets and tighter credit.
Ford has kicked off production of a new, more fuel-efficient version of its popular F-150 pickup truck. However, the debut comes at one of the worst times for U.S. truck sales. They have suffered as gas prices rose and the economic slump has worsened. Ford executives cheered as the new truck came off the line at the Kansas City assembly plant, one of two U.S. facilities making the F-150. The automaker is banking on the truck’s improved gas mileage to lure back customers. Ford officials say that fuel costs have jumped to a Top 5 truck buyer concern. Tight credit and increasing worries about the economy have pulled U.S. auto sales to a 15-year low, with truck sales leading the plunge. Last month, Ford truck sales nose-dived 39 per cent as shoppers continued to gravitate toward small fuel-efficient cars.
The Federal Copyright Royalty Board has left the royalty that songwriters receive on sales of CDs and digital downloads at 9.1 cents per song for the next five years. Both songwriters and music sellers are applauding the ruling–but for different reasons. Apple, which had threatened to shutter its iTunes store if the rate increased, appears to have scored a clear win. The Recording Industry Association of America, representing record labels, was pleased that the rate was frozen for the first time since 1977, meaning that if song prices increase, royalties will make up a falling percentage of the companies’ costs.
Baker Hughes in Houston says the number of rigs actively exploring for oil and natural gas in the United States dropped by 16 this week–to 1,979. One year ago the rig count stood at 1,755. Texas lost 18 rigs.